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Stocks for the Next Decade

Over the long haul, innovative companies provide you with the best chance for stellar returns.

Motley Fool Staff

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Feb 4, 2010 at 12:00AM

Last year, Kiplinger ran an article called "10 Stocks for the Next 10 Years." A few days ago, USA TODAY published a piece titled "Will the Next Decade Be Better for Stocks than This One?" As investors, these articles provoke our interest -- after all, we're all trying to find the world's next Apple(NASDAQ:AAPL) or Yahoo!(NASDAQ:YHOO).

But these days, it's hard enough to find a solid stock for the next few years, let alone the next decade. How helpful is it to look 10 years into the future?

10 picks from last decadeIn August 2000, Fortune released its 10 stocks for the following decade. The magazine's portfolio included companies such as Genetech(NYSE:DNA) and Viacom(NYSE:VIA). Out of the 10 stocks they chose, only one increased in value, two went bankrupt, and the rest saw pretty terrible returns. Overall, the portfolio netted a -44% return, while the S&P 500 saw a -25% decline. Not exactly a great track record.

In February 2000, The New York Times asked 10 superinvestors (including Bill Miller of Legg Mason Value Trust) for one stock pick each -- essentially creating their own 10 stocks for the next decade. And although strong companies like Waste Management(NYSE:WM) and JDS Uniphase(NASDAQ:JDSU) made the list, only two stocks out of the 10 saw an increase in value. Yet despite so many bad picks, this portfolio actually managed to deliver a whopping 33% versus the S&P 500's -18% over the same time period.

With both portfolios demonstrating terrible accuracy and poor acumen for predicting the next decade, how did the second portfolio perform so well?

The two stocks that went up in the second scenario didn't just go up -- they skyrocketed. Henry Schein, the single best performer, saw a 600% gain.

Regarding such magnificent picks, Peter Lynch has said that "one or two of these can make a career."

Making your own careerWhen you're ready to choose companies to hold for the next 10 years, what types of stocks will you look at? In these tumultuous times, no one would fault you for investing in dividend stocks -- after all, they have a great track record and provide you with a steady stream of income. Or you could invest in value stocks; if you think the recession is bound to worsen, value investing has some excellent virtues to covet.

However, it seems much smarter to invest in growth stocks -- companies that are breaking the rules of their industries, and delivering shocks to their competitors. These sorts of companies have the ability to generate astounding profits for any investors opportunistic enough to find them early on.

Just think about the New York Times article. Eight out of the 10 stocks had negative returns, but it only took one home run to turn a dismal portfolio into a spectacular one. If 10 of the world's best investors only had a combined accuracy of 20% and still managed to deliver huge gains, we need to realize that it's not accuracy we're after -- it's growth.

How to plan for the next 10 yearsA note of caution, though: Growth stocks are risky. You can win big, but you can lose big as well. It takes a certain type of investor to seek out growth stocks; not everyone is willing to roll the dice. If you're not that person, you can still be successful with other strategies.

But if you are that person, this is the place to be. At Motley Fool Rule Breakers, our co-founder David Gardner has been finding and recommending disruptive companies since 2004. Since then, Rule Breakers has beaten the S&P 500 by a remarkable 21 percentage points! Better yet, David's been able to deliver such amazing returns to our community through a fairly simple approach.

David looks for earth-shattering companies. Sometimes he picks a winner, and sometimes he doesn't. For instance, in mid-2008, David recommended buying Akamai Technologies(NASDAQ:AKAM), an industry leader in Web content delivery. It's been a pick twice, and although the first pick is up over 100%, the second pick is down somewhat. To be honest with you, there are plenty of Rule Breaker stocks that currently aren't netting gains. But then there's Intuitive Surgical, which David first singled out in 2005. Knowing an innovative company when he saw one, David went on to recommend the company three times over, amassing more than 1,200% since. Those types of gains are enough to wipe out any number of losses.

Sure, I could provide you with a list of the stocks I think will be great for 2020, but I'd be lying if I said they were a sure thing. I'd rather tell you which types of stocks to look for. Find an industry that has tons of potential -- our team specifically looks at nanotechnology, alternative energy, and biotechnology -- and then find a company with the ability to be a market leader and a constant innovator. If you can get in early on something like Intuitive Surgical, you'll be set for the next decade.

If you want help getting started, the Rule Breakers team is offering a 30-day free trial. You'll receive access to all of David's past and present recommendations, in addition to the eight stocks he thinks you should buy right now. If being a Rule Breaker is part of your investing DNA, click here for more information.